Economics of Range Management

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Economics of Range Management
Martin Beutler, Ranch Economist Dan Oedekoven,
Area Management Specialist SDSU West River Ag
Center, 394-2236
12/2001
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Economics of Range Management

• Range
• Non-tillable land whose major use is the
  production of forages. (Gray, 1968)
• Land unsuited to cultivation source of forage
  for animals as well as source of wood products,
  water and wildlife.
• (Stoddart, Smith, and Box, 1975)
• Generally regarded as a land type versus land
  devoted to a specific kind of use (livestock
  grazing).

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Economics of Range Management

• Economics
• The science that deals with efficient allocation
  of scarce resources among competing uses.
• Resources
• Natural (such as rangeland and oil)
• Human (such as labor and management)
• Man-made (such as fencing materials pickups)
• Competing Uses
• Sheep vs. Cows vs. Wildlife
• Grazing vs. Development vs. Recreation (Wor
  kman, 1986)

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Economics of Range Management

• Is Range
• Crop or Product? Marketable or not
• (forage wild life habitat etc.)
• Feed Ingredient? To balance ration
• (protein or energy source etc.)
• Environment? Where I work, do business.
• (scenic beauty market ranch vacations
  etc.)
• What does the rancher you work for think?

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Range Economics Vs. Ranch Economics

• Economic consequences of range management
  decisions from a public agency or private view or
  combined.
• Impact.
• Will it work?
• (Workman, 1986).

• Management decisions viewed from the ranch as a
  business unit view.
• Profit.
• Will it Pay?
• (Workman, 1986)

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Hopefully your management is better than this!
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Economics of Range Management
Know, Understand and Utilize the Unique Set of
Resources that make up the Ranch

• Every Ranch is Unique
• What to concentrate on?
• Biological performance or
• Input costs
• Balance is required
• Directed by goals

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Management Goal Maximize Return to Limiting
Resource
Economics of Range Management
Resources
Marketable Products
Land
Labor
Capital
Management
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Economics of Range Management
Ranch Resources

• Know your land base
• Forage
• Ownership
• Improvements
• Weak Links

• Genetics
• Know what you have
• Keep an eye out for improvements

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Economics of Range Management
Ranch Resources

• Management Capability
• Be aware of new ideas
• Combinations of old ideas
• Involve everyone on the ranch
• Watch practices of others
• Be alert
• Be willing to change

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Economics of Range Management
What is behind what we do in Ranching?

• We produce a product create a supply of
• Cattle, sheep, bison, deer, grass seed, etc.
• Why?
• To earn money?
• As a way of life?
• ?? Whats your reason?

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Economics of Range Management
What is behind what we do in Ranching?

• What allows us to sell our product?
• Willing buyers who create a demand for our
  product.
• It is the interaction of Supply and Demand that
  actually allows us to do what we do.

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Demand

• Demand Quantity of product willingly purchased
  at a given time at a specific price.
• Demand Schedule Various quantities willingly
  purchased at a given time at each of the various
  possible product prices.
• Law of Demand As the price of a product or
  service increases, fewer units are purchased and
  vice versa.

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Demand Curve
Hypothetical Demand Schedule for Beef Price of
Beef Quantity Purchased (/lb)
(Billion lbs) 1.75 6.25
1.50 12.50 1.25 18.75
1.00 25.00 .75 31.25
.50 37.50 .25 43.75
D
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Supply

• Supply Quantity of product willingly produced
  at a given time at a specific price.
• Supply Schedule Various quantities willingly
  produced at a given time at each of the various
  possible product prices.
• Law of Supply As the price of a product or
  service increases, more units are produced for
  sale and vice versa.

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Supply Curve
Hypothetical Supply Schedule for Beef Price of
Beef Quantity Produced (/lb)
(Billion lbs) .25 1.56
.50 9.38 .75 17.19
1.00 25.00 1.25 32.81
1.50 40.63 1.75 48.44
S
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Market Equilibrium

• Condition that exists when the quantity offered
  for sale is equal to that willingly purchased at
  a given price, at a given time.

S
D
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Shifts in Demand

• Increased consumer income
• Change in consumer tastes, expectations
• Change in price/quantity of another good

S
D1
D
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Elasticity of Demand

• Inelastic Demand Large P ?, Small Q ?
• Elastic Demand Small P ?, Large Q ?

S1
S1
S
S
D
D
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Shifts in Supply

• Increase in technology
• Change in price of inputs
• Change in price of alternative products
• Weather, Disasters

S
S1
D
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Elasticity of Supply

• Inelastic Supply Large P ?, Small Q ?
• Elastic Supply Small P ?, Large Q ?

S
S
D1
D1
D
D
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How much would you pay?
1st One _______ 2nd One _______ 3rd One
_______ 4th One _______
1.00 0.75 0.40 0.00
Diminishing Marginal Utility
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Law of Diminishing Returns
States that as a variable input is added to the
fixed input

• the total product first increases at an
  increasing rate,
• then increases at a decreasing rate,
• and finally decreases.

Output
Production Function
Tons of Hay
Input
Fertilizer
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Marginality
Assuming ranchers want to maximize profits, why
dont they produce all that they can in any one
year?

• Output prices too low
• Input prices too high
• Expected rainfall short
• Dont want to be that busy

Production Function
Tons of Hay
Fertilizer
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Marginality
Marginal Revenue

• Revenue produced by the last unit of output
  produced.

Marginal Cost

• Cost associated with the last unit of output
  produced.

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Marginality
Profit is maximized where
MR MC
The the revenue received from the last unit
produced is equal to the production cost of that
unit.
Revenue received from an additional pound of gain
on a steer is equal to the cost of the gain.
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Marginality
Marginal Revenue ?TR/ ?Output Marginal Cost
(MC) ?TVC/ ?Output
Total Product Total Variable Costs
Marginal Cost Marginal Revenue
Total Fixed Costs Total Cost
Total Revenue
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Marginality
Marginal Revenue ?TR/ ?Output Marginal Cost
(MC) ?TVC/ ?Output
Should Produce using between 4 and 5 units of
input.
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Economics of Range Management
Thank You!